The Industrialization and Economic Development of Russia through the Lens of a Neoclassical Growth Model

This paper studies the structural transformation of Russia in 1885-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a dataset that covers Tsarist Russia during 1885-1913 and Soviet Russia during 1928-1940. We use the growth model to develop a procedure that allows us to identify the types of frictions and economic mechanisms that had the largest quantitative impact on Russian economic development, as well as those that are inconsistent with the data. Our methodology identifies frictions that lead to large markups in the non-agricultural sector as the most important reason for Tsarist Russia’s failure to industrialize before WWI. Soviet industrial transformation after 1928 was achieved primarily by reducing such frictions, albeit at a significant cost of lower TFP. We find no evidence that Tsarist agricultural institutions were a significant barrier to labor transition to manufacturing, or that “Big Push” mechanisms contributed to Soviet growth.